Specialty Food Markets: A Business That Couldn’t Fail in Israel – That Is, Until It Did

Rising consumer spending and a growing food culture should have made them a big hit, but it seems the idea hasn't caught hold

The main entrance to the Sarona Market in Tel-Aviv. November 19, 2015.
\ Eyal Toueg

On paper, it looked like a good idea. With Israel’s rapidly developing food culture and increasing spending power, why not copy specialty food markets like London’s Borough Market and Barcelona’s La Boqueria? It seemed like a no-brainer for Tel Aviv, the city that never sleeps.

It turned out it wasn’t a foolproof plan, as Kobi Tribitch, who was a majority shareholder in the city’s Rothschild-Allenby Market, thought. With 75% of the retail and restaurant space standing empty and the place deserted, he filed for bankruptcy last week under the weight of a 19 million shekel ($5.5 million) debt from the failed investment.

Shalom Maidan, whose restaurant Dim Sum Station had an outlet in the Rothschild-Allenby Market until last July, said that between taxes, fees and constant inspections it was impossible for tenants like him to control costs and offer attractive prices.

“The location was fantastic, but the mix of business wasn’t good,” said Maidan, who has since sold the business. “They needed to go the way of closed markets in Asia, with small food stands one after the other that offer street food at reasonable prices.”

Rothschild-Allenby isn’t the only failed market in the city. The North Market in the Ramat Hahayal neighborhood been open for two years but anyone who visits during dinnertime won’t find much to celebrate.

The North Market
Tomer Appelbaum

Sarona Market in central Tel Aviv has seen some pickup in turnover, but it’s still struggling to attract visitors. Even after over years in operation it’s still not fully occupied and turnover of tenants is high. The Jaffa Market closed two years ago, two years after it opened.

“It looks like we’re at the end of the food market era, at least in Tel Aviv,” said Idan Spivak, a media adviser for culinary business at the public relations company Blender Communications. “I don’t see any entrepreneurs wanting opening market in the city and I don’t think Allenby-Rothschild will be the last to close.”

Each market suffered from different problems, but the bottom line was that the concept wasn’t particularly popular and visitors rarely shelled out enough money to make them viable as businesses.

“People come to the markets to hang around, buy some ice cream or a croissant for the kids, and go home – and that’s not enough money being spent to sustain centers like these,” explained Spivak. “And, of course, there was the most serious illness that all the markets shared: Everything is so expensive.”

Outside of Tel Aviv, there are fewer markets competing for the same business and the business models yet may have some life in it, he added.

The only truly successful market in Tel Aviv is at the Tel Aviv Port, and it has been operating for a nearly decade.

Shir Halpern, who owns the market as well as rights to farmers markets in the suburb of Givatayim, said it has succeeded because of its origins: It started in 2008 as an ordinary farmers market and only developed into a specialty food market two years ago, based on the farmers’ model.

Rishon Letzion Food Market.
Mor Ziv

“At other markets that came after us, even outside of Tel Aviv, the word ‘market’ doesn’t mean very much ... They don’t provide a market experience or a [business] mix that encourages people to shop,” she said. “Our market is 70 to 80% products or ingredients while the new markets, most of the area is for restaurants.”

She said markets have to offer something worthwhile in order to coax people out of their homes and into their cars to fight for a parking space on a Friday morning.

There are about 60 open markets  across Israel, most of them in smaller, established towns. But the market share of total food sales has been falling to about 3% today from 5% five years ago, according to estimates by the market consulting firm Czamanski & Ben Shahar. Tamir Ben Shahar, a partner in the firm, says open markets have been losing shares to lower prices and better shopping conditions at supermarkets.

“In the 1950s, we would go to the market because it was nearby and the prices, quality and selection were good,” he recalled. “By the 1980s, minimarkets and supermarkets became more common and offered comforts like indoor shopping, air conditioning and parking. Then in 2002 through 2005, discount supermarkets like Victory and Rami Levy entered the scene ... So that leaves the question, where do the new markets have a place?”

He said traditional public markets, like Tel Aviv’s Carmel and Jerusalem’s Mahane Yehuda, are still thriving, but private markets aren’t because the idea hasn’t caught hold.

In any case, the new, stylish private markets emphasize restaurants over food stands and the reason for that is commercial. A food vendor will pay 10,000 to 15,000 shekels a month for a space that a landlord would charge a restaurant as much as 30,000 shekels. That’s why even the traditional public markets are changing.

“Even in Carmel and Mahane Yehuda we’re seeing more restaurants at the expense of produce stands,” he said, saying the municipalities have no clear policy on what should characterize the open markets in their jurisdictions. “If the restaurants keep spreading into the food standards, there won’t be any real markets left in Israel.”

Still, Ben Shahar thinks the concept could still work and blames much of the problem on faulty business decisions, not on absence of demand. What needs to be done is to lower rents, ensure an attractive mix of food stands, restaurants and entertainment. Veteran open air markets need to be upgraded.

“Israelis love markets,” he said. “People no longer want go to a mall to eat shwarma.”